Question

I don't need 1.-3. Just the rest please

TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical Industry. One of the company's products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2.060 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding machine time, annual production is limited to 5,075 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting department has provided the following financial data concerning the WVD drums: $ 161.ee $52.10 WVD Drums Selling price per drum Cost per drum: Direct materials Direct labor ($21 per hour) Manufacturing overhead Selling and administrative expense Margin per drum 4.20 6.30 30.40 93.69 $ 68.28 Management believes 6,075 WVD drums could be sold each year if the company had sufficient manufacturing capacity. As an alternative to adding another welding machine, management has considered buying additional drums from an outside supplier. Harcor Industries, Inc., a supplier of quality products, would be able to provide up to 4.075 WVD-type drums per year at a price of $147 per drum, which TufStuff would resell to its customers at its normal selling price after appropriate relabeling Megan Flores, TufStuff's production manager, has suggested the company could make better use of the welding machine by manufacturing bike frames, which would require only 0.5 hours of welding machine time per frame and yet sell for far more than the drums. Megan believes that TufStuff could sell up to 1,660 bike frames per year to bike manufacturers at a price of $254 each. The accounting department has provided the following data concerning the proposed new product: $ 254.ee Bike Frames Selling price per frame Cost per frame: Direct materials Direct labor ($18 per hour) Manufacturing overhead Selling and administrative expense Margin per frame $101.20 33.68 39.00 58.20 224.00 32.ee $ The bike frames could be produced with existing equipment and personnel. Manufacturing overhead is allocated to products on the basis of direct labor-hours. Most of the manufacturing overhead consists of fixed common costs such as rent on the factory building. but some of it is variable. The variable manufacturing overhead has been estimated at $1.35 per WVD drum and $1.90 per bike frame. The variable manufacturing overhead cost would not be incurred on drums acquired from the outside supplier. Selling and administrative expenses are allocated to products on the basis of revenues. Almost all of the selling and administrative expenses are fixed common costs, but it has been estimated that variable selling and administrative expenses amount to $0.75 per WVD drum whether made or purchased and would be $1.60 per bike frame. All of the company's employees-direct and Indirect-are pald for full 40.00-hour work weeks and the company has a policy of laying off workers only in major recessions. As soon as your analysis was shown to the top management team at TufStuff, several managers got into an argument concerning how direct labor costs should be treated when making this decision. One manager argued that direct labor is always treated as a variable cost in textbooks and in practice and has always been considered a variable cost at TufStuff. After all, "direct" means you can directly trace the cost to products. "If direct labor is not a variable cost, what is?" Another manager argued just as strenuously that direct labor should be considered a fixed cost at TufStuff. No one had been laid off in over a decade, and for all practical purposes, everyone at the plant is on a monthly salary. Everyone classified as direct labor works a regular 40.00-hour workweek and overtime has not been necessary since the company adopted Lean Production techniques. Whether the welding machine is used to make drums or frames. the total payroll would be exactly the same. There is enough slack. In the form of idle time, to accommodate any Increase in total direct labor time that the bike frames would require.

Answer 1

254 o contribution Margin Pee Unit (assume direct labor is a fixed Cost) Purchased Manufactured Particolau WIND (NVD i Bike Drons broms I frames Selling price (A) 161 T 161 : Variable Costi Direct Materials 147 / 52.10 101.20 Variable Manufacturing echusing 1:35 - 190 o.oo Overhead Variable selling & admin. . -istrative 0.75 l 0.75 l togo Total variable Costas 147-75. | 54.20 I 104.70 contribution Mougin i 13.25 / 106.80 Į 14.9.30 CA-B) oooo

3 Contribution Margin per welding hour [Assume direct - labor is a fixed Cost] Manufactured Bike . frames Contibution Margin pee unit() $106.80 $149.30 Welding hours per unit (B) I ordehors oog his. contribution Margin per welding for hoor (A+B) $267 $298.6 ميعاد الميه) و WVD Dooms Purchased Manufactured WYD Drums 3000 3075 Bike frames 1660 Refer 4 (6) to know them in detail.

() x (2) unit 1 Welding 03 (3) Total welding Time Total Contibution Margin Time per l unit Balance of Welding Time 2060 830 1230 $149.30 & 106.80 $13.25 0.5 ore 1230 0 . 30*5) Particolaus Quantity Total hours available Bike flames Produced 1 1660 alvo Drums - Make/1230 | 3075 WHO Drums - Buy 3ots 3000 Total Contribution Margin Less: Contribution Margin from Present operations (5075 drums * $106.80 contribution Haugen Pedroom Increased contribution Margin I and net operating Income $2,47838 $328,410 $ 39,750 $615998 (542016 $73988

s) Contribution Margin per Unit (Assume direct labor is a variable Cost] 147 Purchased Manufactured Particulous WNO Drums I Bike Dooms frames selling price (A) 161 161 254. Variable Cost: Direct Material 52.10 101.20 Direct labour Gooo 4.20 33.60 variable Manufacturing ooo 4.35 1.90 overhead valiable selling 0.75 0.75 1.60 adminsteative Expense Total vailable Cost (B) 147:75 58.4 | 138. conterbution Margin | 13:25 | 102.6 13:25 102.6 / 115.70 (A-B)

6.) Contribution Margin per welding hour (Assume - direct labour is a variable Cost) Manufactured Particular WVD T Bilee Drums / Contribution Margin Per Unit (A) 102.60 $115.70 Welding hours Per Unit (8) o.this l ois his contibution Margin per welding 256.5 23114 hour CA - BO

Purchased Manufactured 925 siso WVD Drums Bike frames Refer 7(b) to know in detail.

Welding Contibution Time Per Il Mougin Balance of ICO X (2) total Contubation! I Total Welding Welding Time 2060 5150 $528390 T (2) (s) I Cox[3). Particolaus Quantity I contubation! Time unit Total hours available WYD Doums -make soos $102.6 Boly 2060 (2060 - SISO) Bike frames produced I o I $115.70 | 0.5 AND broms-Boy 925 $13.25 Total contribution Hangin Lessi Contribution Margin from present opeeation. (3075 Drums X$102.60) increased Contributions. Margin & net operating forcone $12256.25 $540646.25 ($520695) $19951.25